Only people with high needs will be eligible for State houses under changes confirmed by the Government today.

Housing Minister Phil Heatley said from July 1, only applicants rated A and B priority would be eligible for State houses and be able to go onto the waiting list. Priority A tenants have severe and persistent housing needs, while B rated tenants have significant needs.

Lower priority applicants, ranked C and D, are deemed to have low or moderate needs. They will not be eligible for State houses and will not go on the list, but will continue to be recorded on a housing needs register to get other assistance.

People already ranked C and D will remain on the list and be eligible, but are highly unlikely to get a State house.

At the end of May there were 5787 people on the waiting list for a home. Of those 274 were considered A priority, 2204 B, 1816 C and 1493 D.

"Housing those not eligible for state housing means working very closely with third sector providers of niche, social and affordable housing to significantly grow the volume of social housing available," Mr Heatley said.

"We want to ensure that tenants with the greatest need have timely access to a state home for the duration of their need."

HNZC will review tenancies for all new tenants once every three years from July 1.

"When their circumstances improve significantly and they are able to afford a home outside state housing they will be assisted to move - freeing up a state house for someone in greater need."

Elderly and disabled people would only be reviewed if their circumstances changed.

In other changes HNZ would be able to impose a one year ban on tenants who abuse their state home or engage in anti-social behaviour from reapplying for a state house, and there would be stronger measures to detect and prevent fraud.

"A state home and the income related rent that goes with it amounts to a considerable taxpayer subsidy for a household. We want to make sure this benefit goes to those in the greatest need, for the duration of that need," Mr Heatley said.

Labour housing spokeswoman Moana Mackey said the changes would create enormous uncertainty and instability for tenants and make it harder for struggling families to get into a home.

"Successive National party budgets have slashed funding for state housing, with Housing New Zealand now having to find savings in their baseline funding if they want to add more homes to their stock," she said.

"But instead of building more houses, National's answer is to boot people off the waiting list and to kick families out of their homes and pretend they don't exist."

People were already being turned away before being assessed, she said.

"This has resulted in the Housing New Zealand waiting list dropping by nearly 3000, with many of these people turning up in emergency accommodation having lost everything trying to sustain tenancies that they could not afford in the first place."